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Where Is My Federal Tax Refund

By Elizabeth Belli

You've heard about refinancing in the mortgage market. Whohasn't? Interest rates are at all-time lows. Folks haverefinanced two and three times in as many years to savethousands of dollars in interest they would have otherwise paid.

There's a similar lesser-known boom happening in the world offederal student loans. Refinancing or consolidating them canalso help borrowers save thousands of dollars in interestexpense, and consolidation can cut a borrower's monthly paymentsdown to a size that's much more affordable.

The two most common types of federal student loans availabletoday are Stafford loans (for students) and PLUS (Parent Loansfor Undergraduate Students). The variable interest rates onthese loans are the lowest they have been in over 30 years -currently, Stafford loans carry a variable rate of 3.46% whilethe student is in school, deferment and grace, and 4.06% inrepayment. PLUS loan interest rates are currently 4.86%regardless of the student's status. If those rates would holdover the standard 10-year repayment term, that would be the endof this story. But, they won't hold. Federal student loaninterest rates reset every year on July 1; Stafford loans ratescan climb as high as 8.25% and the PLUS cap is 9%.

The great news for borrowers is that consolidating these loanslocks in a low interest rate. The formula for determining aFederal Consolidation Loan interest rate is to take the weightedaverage of the interest rates of the loans the borrower wishesto consolidate and round it up to the nearest 1/8%. So, forexample, if a borrower had only Stafford loans in repaymentissued since July 1, 1998, the variable interest rate on theseloans is currently 4.06%, and the fixed interest rate for thatborrower's consolidation loan would be 4.125%. That's 4.125% forthe life of the loan -which can be up to 30 years depending onthe borrower's level of indebtedness.

Now, that's a deal every person with student loans should beconsidering right now. Because on July 1, interest rates reset.

And there are other advantages to federal student loanconsolidation. With extended repayment and graduated repaymentoptions, borrowers' monthly payments can be reduced by 50% ormore -especially helpful to recent graduates trying to make endsmeet. And, if a borrower has multiple lenders and multiplemonthly payments, consolidation lets the borrower make a singleand (generally) a lower payment to a single lender - simplifyingbill payment and improving cash flow. Finally, federal studentloan consolidation is free - there are absolutely no fees toconsolidate.

Although the terms of a Federal Consolidation Loan are exactlythe same, regardless of who lends you the money, a number oflenders are offering incentives to get borrowers to consolidatewith them. And, these incentives can save borrower hundreds,even thousands of dollars in additional interest. Most common isa .25% interest rate discount when borrowers agree to repaytheir new consolidation loans electronically (direct debit). Amore significant discount is offered by some lenders whenborrowers make timely monthly payments on their newconsolidation loans. For example, ConsolidateYourLoans.comoffers a 1% interest rate reduction after the borrower has madethe first 36 consolidation loan payments on time. Other lendersoffer the same discount after 48 or 60 payments, and othersoffer lesser discounts at other payment intervals, but the ideais the same. Just keep in mind, the faster you get the discountand larger the discount is, the more you can save.

There are a handful of federal student loan consolidators and,right now, the volume of loans they are originating is large,but manageable. Most consolidations are completed in 45-60 days.But, you can bet that the number of people seeking consolidationis going to grow as the deadline (June 30, 2003) approaches. So,if loan consolidation sounds like a good idea to you, read on tosee if it warrants your further investigation and, if it does,get your application in quickly.

Is Student Loan Consolidation Right for You?

Federal student loan consolidation is a great financialopportunity, but it's not right for everyone. To make the bestchoice for you, you should consider the following: Q. Can youtake on a longer repayment term in exchange for lower monthlypayments? A. For most borrowers, loan consolidation extends therepayment term from the standard 10-year (Stafford loan) term toup to 30 years, depending on your balance. A longer repaymentterm means that, unless you prepay your loan, you will pay moreinterest than you would on your unconsolidated loans. You cancontrol your interest cost by choosing one or more of thefollowing: ·Request a shorter repayment term than your balanceallows. ·If you can afford it, choose an equal payment plan. Youshould always make monthly payments that are as large as you cancomfortably afford, and an equal payment plan will cost you theleast because you are paying all principal and interest due eachmonth. A graduated repayment plan will reduce your monthlypayments in the early years, and you might need to choose one ofthese plans to make ends meet, but they will cost you more intotal interest. ·Prepay your loan whenever you can. Just send anote in to your loan servicer with your over-payment asking thatit be posted to your principal balance. ·Don't get behind inyour payments. Interest will continue to accrue on your unpaidbalance, costing you more.

Q. Do you owe enough and have enough time remaining in yourrepayment term to really make a difference? A. In today's rateenvironment, regardless of indebtedness, most people who havegraduated recently or have been repaying their loans for lessthan 5 years will benefit. To get a rough estimate of yoursavings with a consolidation loan, go towww.ConsolidateYourLoans.com, click on "Calculate My New Loan",complete the simple worksheet and click "Consolidate".

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